I recently read two of Nassim Nicholas Taleb’s books: Black Swan and Skin In The Game. Taleb is an expert on risk management and he confidently scoffs at the current understanding of risk.
At a high level, his thoughts are that we’ve fallen to the ludic fallacy, the idea that all of our academic teachings around risk are bound like a closed system through games, like rolling dice, poker, etc. Risk in real life is incredibly open-ended and with the cascading addition of external variables, we’re not at liberty to devise mathematical models to try and project it.
Instead, risk is best understood through a black swan model: where the largest impact on a system or trend is by a few unknown unknowns, so caught off guard but powerful in its impact that anyone who could claim they predicted it is lying. This couldn’t have rung more true than during our global pandemic of COVID-19 — or even to build upon the “predictions” that we’d have a global lockdown for only two weeks.
Looking back at the pandemic, we’d fall into another fallacy that Taleb claims history continues to fall victim to: the narrative fallacy. This is when we look at the past, assess and explain what happened and why it led up to that black swan event using broad brush strokes and oversimplifying these causal events. It’s dangerous because it convinces people that this was an inevitable outcome, which is contrary to the black swan nature since it’s an unknown unknown.
I’ll be keeping an eye out for how history will write off COVID-19 and even more tuned in to how we enable safeguards to prevent future instances of these black swans — only to guard against this similar event and not unknown unknowns.